My first question is on the personal loan and the business loan segment. So, the GS3 numbers that we've shown in our table over there, exactly going back to the point sir was making that there are certain sub-segments probably you are looking to be slower in. Fair to say that probably PL and BL would be one of those segments? Qualitatively if you can make comments around which kind of customer segment or business profile are we seeing stress on?
Now what was your first question was PL, BL sub-segments? So actually, you know, our PL and BL are two distinct segments. PL is largely to salaried employees and BL is to self-employed segment. And in each one of them actually we've seen a drop in slippages and if you notice our slide 16 it actually shows that the slippages in PL are much better because PL is a segment which had suffered more as you would remember two years back than the BL segment. So, the visible more visible improvement is in PL also. So as far as sub-segments within that are concerned, we have a huge number of sub-segments which our risk tracks on a regular basis. As I told you nothing at the moment is showing but segments like hotels and travel related these are the areas where we have tightened a bit on our policy, as I was mentioning to you, in the MSME segment.
The question is around the reconciliation of the LAP number. When I look at the LAP number above, it is somewhere in one of the slides above it's at around INR38,000 crores and the when I look at the Tata Capital Housing, it's at around INR17,000-18,000 crores. So just wanted to understand what is the difference between the two and why are we running two different LAP books? Second is you did mention about the opex, but with guiding for around 23-25% kind of a growth levels in '27-'28 or in the medium term, how do we look at opex growth or maybe opex to assets going forward in the next one-two years' time?
So if you would you know look at our LAP book, we do loan against property in both the books, the NBFC and the Housing Finance company. We feel it's a large market and in terms of portfolio quality, both the portfolios have done very well and we do believe that both these entities have an opportunity to do so. They are two separate teams which work on it. We just ensure that credit policy on credit policies we don't compromise. So we want to stick to that strategy and want to continue to do so in the future too. As far as your question on opex to assets is concerned, if you would look at our guidance for FY28, we have said that cost to income should be between 33 to 34% and we do believe that is achievable. See what is happening now, if you look at NBFCs or banks also I think but in NBFCs 50% of the cost, close to 50% of the cost is people cost and the balance is the other costs. As you know, other costs are obviously a lot of efficiency is coming in them because of you know digitization, automation, using robotics or GenAI. So you are clearly seeing the benefits. As far as people is concerned, what we are realizing that increasingly the only two places where we feel any significant addition on people will happen will be on sales and collections, rather than all functions, because a lot of automation is happening in the other areas.
In terms of the corporate lending, if you can just let us know the profile of it, at what yield it is happening compared to that of the overall book yield, and what would be the average maturity of this portfolio? And secondly, if you can quantify in terms of maybe there would have been the red, amber, and green, and what would be that proportion within the overall SME pool which is getting closely monitored or which are vulnerable to some of the higher input prices?
Thanks, Kunal. So as far as corporate is concerned, corporate has three parts to it. One is clean energy business which we do. Second is the opportunistic corporate lending which we do, and the third is some part of developer funding which we do there. We look at lending to very high rated corporates. They may be AAA or AA sort of corporates where we may have an opportunity to lend. It could be short-term which could be 1-year, it could be long-term which could be 3 to 4 years typically. So it would be well spread out. I would say, it's there in clean energy, where there is a lot of demand for credit, where new projects are coming up. It's there in developer finance and it is there in - you name probably the top 10 corporates of the country and half of them will be there. As far as yield is concerned, our approach is slightly different there. What we look at is return on assets rather than yield. While any other business may give us a higher yield. In corporates, the yield may be more closer to maybe 11%, in developer it may be more closer to 12%-13%. But more important, their return on assets is very good. They are all sort of 2.5 and above. As far as your other question on red and amber and this, so actually everybody defines red, amber very differently. It's just that when we reviewed it and if red means we expect this client to move to a delinquent position. When I say delinquent, I'm not talking about just 90 plus, even if will it move to a 30 to 60 or 60 to 90, we did not see because of war any such client in our book.
This year has been basically you have de-grown the motor finance book. So what is the kind of message that you are passing to the dealers or your sales people are passing to the dealers given that a lot of churn would have also happened in the front-end teams after the merger, like you said you had rationalized manpower. So in terms of market share, how do you see that progressing because there is already a lot of competition at the dealership? A lot of the peers are also giving trade finance to support their volume. So how do you see the entire situation and would you be doing trade finance too just to gain market share?
So, Gaurav, I completely admit the market is very competitive. Actually, there is no product in India in financial services where you don't see competition. Our approach is very simple that look, as far as risk and credit is concerned, we will decide what we want to keep on our books and what we want to originate. The sales team will have to work harder to originate based on that quality which we want. For us, in the Motor Finance business, actually our volumes had gone down even before the merger had happened. And if you look at from the last April-May, we have only been growing now. So what dealers are seeing is that the phase of the volumes going down, the monthly volumes going down is over. Now for the last 6-8 months, they are only seeing incremental increase in volumes. So to that extent, what you were saying is history for us. Now the current new history is that we are growing. As far as our approach towards dealer finance or giving credit to channels are concerned, we do it purely based on merit. We have been in this business of providing credit to dealers for the last 10 years plus. So, we basically are leveraging the same to do more of retail business. If you look at the channel finance business, our current channel finance business gives us a yield of 11% plus. And that is usually a, I would say, 60 to 90-day business.
Regarding the average yield that you have given in the annexure. That is the AUM yield or the disbursement yield? The AUM yield has dropped by say 90 basis points during the year. So the question related to that is, you mentioned that we saw a little bit of tightness in the market during April, and because of which incremental borrowing costs are higher. But the regulator, RBI, NHB, they are all behind HFCs, NBFCs to pass on the rates and move the cost towards the customers. So, my question is twofold. One is how much of the book is fixed or floating? And what is giving us the confidence? Are we slightly higher? Because structurally if the yields are going down, then will it be possible for us to maintain better ROAs or even increase the yields if there is a requirement?
AUM yield. So, as far as yields are concerned, two things there. That one, you know, one should look at yield as well as the drop in cost of funds. So both should be looked at together. And what we are seeing there is while cost of funds are also coming down, we are passing on the benefit, so the yields are also coming down. But the other point which I had mentioned to it earlier, which probably comes out more clearly, is this that when you look at the two-point average versus daily average, on a daily average, we are seeing that the drop in yields is not more than the drop in cost of funds. While on a two-point average, it looks more than that. And that's the reason your net income will increase at a faster pace than your average book. The other point which I want to say is that we are trying to increase the mix of products towards more high-yielding products, which I would say would be very different in FY27 over FY26 because in FY26 our unsecured book did not grow any significantly. But since the disbursements have started to grow, you will see the book growth happening in FY27. And the second thing is Motor Finance also, which is a high-yield book, was de-growing in FY26, which will not happen in FY27. Sarosh Amaria added: Omkar, I could just add here that in the housing finance, and particularly the affordable, more than 98% of the book is floating. The yields that you spoke about on our affordable segment is for the last financial year is around 12.10 on the book. And our NIM plus fee, which was in the region of 6.7, has improved to 7.6 in this financial year.
I think you just mentioned that there were some slippages in the CV finance portfolio in the fourth quarter. When I'm doing my numbers and my calculations, that indicates that there have been some net recoveries in that portfolio of about INR35 crores. Can you verify what was the net amount, whether it's a net slippage or a net recovery in the CV finance portfolio?
Actually slippages have gone down and recoveries have improved. And that is the reason if you look at our Motor Finance business, I'll just try to point out to that slide. Actually we've mentioned that for the Motor Finance business, our net Stage 3 assets have come down. In fact, as far as profitability is concerned, for quarter 4 in Motor Finance business, we've earned a profit of INR43 crores. I would say a good portion of that has been contributed by higher recoveries and lower slippages. And actually our credit costs are negative. Net slippages are negative, sorry.
Can you touch upon how you're looking at growth in the CV finance portfolio in FY27? CV volumes have been very good in the second half, and ideally you should be capitalizing on these volumes for the industry, right? So just some thoughts on how do you plan to capture this cycle from FY27 onwards?
So, as far as the coming year is concerned, you're right that there is strong momentum in the commercial vehicle business. In fact, for the first time in March, we crossed a four-figure number as far as disbursements are concerned and we expect this momentum to continue. However, we do have a matured book in the commercial vehicle business on which we have a fair amount of repayments happening. So while we will grow our disbursements, the impact on the overall book growth may be more closer to 10% as far as the book is concerned. Our disbursements will grow at close to about 80% plus, that's what we have planned in next year. But because of the matured book there are a lot of repayments also which are happening. Consequently the book growth will be lower.
You seem to be pushing a lot more on corporate lending, that's visible in the numbers. I think last quarter also it was there. And unsecured growth is also coming by, one is low margin product, one is the other one is a high margin. So for '27, what are you thinking on product strategy and what will you guide for in terms of spread expansion given that the yields have also started to pick up? And how are you looking at cost of fund?
So, cost of funds is, I would say, a moving scale, tough to predict what is going to happen. But based on what we have seen and our estimate is, our cost of funds for the next year FY27 should be lower than the cost of funds for FY26. Now how much lower, time will tell, but we expect it to be lower than FY26 on an overall basis because a lot of liabilities have got repriced last year. As far as margins, growth and margins both I will talk about. Motor Finance is also a high margin business for us. The other unsecured businesses, personal loan, business loan and microfinance, we've given it on Slide 16 what's the momentum on disbursement growth there. While disbursements have started to grow in that business from -- over the last, I would say, 6 to 8 months, in personal loans, the impact on the book is less visible now because there were a lot of repayments also on a matured book, but you will see the impact on the book in FY27 where you will see significant improvement in book growth also. Same is true for business loans. Business loans we expect also the book to grow at a pace better than our overall book growth rate, and same is true for microfinance. So for all these three businesses, the book growth will be higher than the overall growth rate of Tata Capital. So you will see an improvement in margins and growth there. Similarly in the housing finance business, we've grown last year at about 29% in the housing finance company and we expect to grow at a similar pace in the coming year. As far as FY26 is concerned, while just to give you a sense, our housing finance company grew by about 29%, our retail secured grew by about 28%. And so these were businesses which have shown strong growth. SME growth picked up in quarter 3 and quarter 4. We did see a de-growth in our book by about 24% in Motor Finance business, and part of it was made up by retail and housing and part by the corporate business. So we did see an opportunity in the corporate business of looking at very high credit rated companies and we did use that opportunity.
Rajiv, I had two questions. One is if you can explain the relatively weaker non-interest income in this quarter, like what are the internals of it and what drove that? And secondly basically I think it's a derivative of your response to the previous question. Now currently in the rate cycle that we are in, there will be probably more opportunities that may come up in the SME and corporate segment. But given that, we also would want to from a mix perspective want to grow the retail book as well. What will be your priority to look at in terms of overall profitability and say NIMs and spreads or to basically, say, push up further more on growth at an overall level?
So, as far as growth is concerned, we've given a guidance of 23% to 25% and we want to remain in that range. Obviously, if we get an opportunity to do better we will look at it, but we want to remain in that range. As far as NIMs are concerned, our strategy has been to grow some of the high yielding products more than the others. Last year we did suffer on that count because our unsecured business did not grow because we were - we had course corrected ourselves in FY25 and the impact was visible in book growth in FY26. Similarly our Motor Finance business which is also a high yielding business actually degrew by about 24% last year. We believe all of this will get corrected in FY27. We expect in FY27 Motor Finance business to grow, it will grow and we also because of the disbursements which have picked up in the unsecured business we expect unsecured business to grow at a faster pace than our overall book growth. Similarly our affordable housing within housing is growing at a faster pace and we will see that also helping us in our NIMs. So it is because of all of these products, our NIMs we expect them to grow. The other thing which I want to point out is sometimes we do not get a true picture of the NIM if we look at a 2 point average versus a daily average. While on a 2 point average the NIM looks flat, on a daily average shows a 10 basis points improvement. As far as your other point Viral on non-interest income. While on the core fee side that has been showing a good trend for us both in terms of loan-linked fee or in terms of insurance cross-sell or syndication, all of those segments have grown very well for us. We have seen an impact on mark-to-market on our investments and that is more so on the investments on the private equity side. As you would know, March end saw a decline in the stock market and that impact was visible on our listed investments.
Rajiv, if you can give some more color from say an asset quality perspective across some of the other segments, I would say especially how the mortgage piece is behaving I would say now that the growth rates and the book is seasoning even more. And secondly with regards to say the bounce rates, what was there the bounce rates that you saw in the month of April? I know you said that overall level you don't see any stress, but would you want to quantify that and is it within the normal ranges?
So let me cover Viral segment by segment, you'll get a better picture on the same. So as far as corporate and SME are concerned, there is no challenge which we are seeing. In fact SME is one sector which we review every week post this whole war issue which has come in. So we review all our clients to see whether there is any stress. We've not observed anything which will give us or alarm us in any way. So to that extent I would say we've seen no stress build up or anything happening on corporate and SME and we believe that we hardly have any credit costs there and we expect the same to continue in the future too. As far as housing is concerned, which is the largest segment for us, the housing finance company, our credit costs for the year have been 10 basis points and in fact if I look at the trends, I see no reason why things should be any different going forward. As far as retail is concerned, that's the place on the unsecured side where we had seen stress in FY25. And there as we had mentioned before we started seeing a lowering of credit costs happening from Q2. Quarter two was lower than Q1, Q3 was lower than Q2 and Q4 was lower than Q3. So in all of them we've seen an improvement and same is true for motor finance. In fact we had a great quarter, quarter 3 was good, but quarter 4 was even better for motor finance business. As far as your question on bounce rates were concerned, we were also concerned about it. And we looked at the numbers for the month of April and if I have to be very honest with you, actually we've seen a bounce rate coming down in April compared to quarter 4 of last year.
Looking at your growth trajectory ahead, the single largest segment is home loans, which has grown at around 16% this year. So given the fact that you're looking at around 23% to 25% loan growth next year, with probably the share of retail going up, I would expect that home loans, being the largest segment probably needs to grow at a faster pace than where it is today. What kind of a loan growth do you really see for home loans and why is it sort of in mid-teen levels right now?
So let me cover it in parts, Nischint. You know we look at home loans in some distinct segments. One is obviously the prime loans, both home loan and prime LAP. The other is affordable housing and the third is micro housing. And if we look at these products, our prime home loan and LAP is growing at 21% plus. Our micro housing is growing at over 50% and our affordable housing is growing at close to about 25%. So these are very healthy rates for us. In fact over the last, I would say, 6 months and also as per our plan for next year, we are adding a fair number of branches or going to more locations I would say for affordable housing and micro housing and we expect these segments to grow more. Our approach as far as housing is concerned is to also look at a new segment which we're getting into, which is the near prime segment because we do not want to compete at the 7.25% and 7.2% rates being offered by other players. Our approach is to make the near prime bigger, grow you know make the affordable housing even bigger and make the micro housing also bigger. So that we can get the right NIMs along with the right credit costs.
And within the housing finance subsidiary, what would be the ratio of home loans and LAP? I believe you need to have around 60% home loans? Now this year growth in home loans was around 16%, LAP was 36%. So you know probably need to catch up on home loans, right?
So, we are, the ratio is 60%, so we are closer to about 61%-62% in that range. We are between 61% to 62%. Correct. You're right. And there within that also our effort will be to grow affordable housing more. That was the only other point, but I take your point on the first thing which you mentioned. I was only clarifying where we want more growth to happen. So Nishchint, what happens and you know this market well, you've seen this for a very long period of time, whenever the rate drop happens, the pressure on BTs increases. And when the rate drops are not there or rate movements are less, the BT pressure reduces. So last year the BT pressure was very high. While we lost portfolio also, we did gain a portfolio where BTs came to us. So, it was true on that, but what we have what we are looking at in FY27, one we do believe that the BT pressures will be lesser in FY27. And the other thing is we are very focused on doing our bit on originating more. So, we are expanding to more branches because today while at Tata Capital we may have ~1400 branches, within housing finance we are there in just short of 400 locations. So, we have ample opportunity for us to also geographically expand, which we are doing.
As you move ahead from April to May and so on, are we sort of seeing any tightening in the screens the way the overall macro is? Are you sort of tightening the screens, would you kind of say that maybe for a quarter or so the pace at which your unsecured book is growing you may want to kind of mellow down a bit?
No, so Nischint, our approach is as follows. One, we look at what's happening in the market. As I mentioned to you, our risk, credit, and business teams virtually spend every week time on reviewing how things are progressing. The biggest segments which we are looking at is the SME segment and the commercial vehicle segment, how they pan out especially if the fuel rates also go up, they may impact commercial vehicle segment. So, what we have done right I would say a month back or so is looked at in which sub-segments of this we should tighten our approach, meaning either look at lower leverage or look at higher credit score or look at tighter scorecards. So, we've looked at in within MSME in which sub-segments we should do so and that communication has gone to the credit team. So, the approach is that we should tighten our norms in these sub-segments, for the others we should continue to watch but continue to also grow.
Just one follow-up on your branch strategy and your disbursements per branch, obviously with the kind of addition that you had done over the past three years, it was on a declining trend. Optically it looks that it has picked up this year, but is it fair to say that the retail disbursements as per retail branch has picked up or this is just looking optically better because your corporate and other book has scaled up quite well? Will the trend be, are you still increasing on the retail disbursement per branch?
So, if you look at the year which just went by, we did not add too many branches on the retail side. And that will obviously with our disbursements growing, it will always mean that per branch our numbers have gone up. Our approach over the last year which we had stated before was that our we may not have all products present in all branches. So, our effort before we add new branches would be how can we populate more products in each branch so that we can leverage on the cost which we've already incurred for the branch. Going forward also while we are expanding, we first look at can we get in the branches more products before we physically expand. But we will you know we didn't add new branches in any significant way in FY26, but in FY27 it will not be the pace which we had done over the last three years, but it will be a reasonable number of addition to our branch network I would say going forward. So, we can expect a 10 to 15% increase in our branch network.
Rajiv, I mean, if I look at the FY'28 guidance on profitability, that's a 60 basis point movement from where we are today. Now, broadly, 25, 30 basis point, it seems you are explaining from the cost to income and where today our credit cost is flat. So, that kind of leaves nearly 50 basis point to be explained by you know, margins. Now, if you look at the credit cost side today, I mean, our housing is at 10 basis point. Now, if you go more into the affordable and near prime, is that 10 basis point looks kind of sustainable? When you are going to increase this unsecured piece, that kind of will start to balance out. So, then at the aggregate level, is this kind of credit cost manageable because under 1% is kind of not seen in the non-banking financial side? And secondly, related to that only, your opex, I mean, if you kind of for the area you want to grow more, whether it's a housing or unsecured, again, these are relatively more opex intensive. So, you still think that, okay, this improvement is kind of doable?
So, Avinash, let me cover this. See, if you look at our history and, you know, you look at before this unsecured, increase in unsecured credit cost went up, our credit costs were always in the range of about 70 basis points or so. So, despite, you know, all of what used to happen, you know, it may be 10 basis points here or there, but they were in that range. It did increase, one, because we saw higher costs in the industry happening on unsecured, and two, because of the merger of Tata Motor Finance and Tata Motor Finance had higher credit costs. So, even if you look at the FY26 numbers, our credit costs are 1.2%. Now, based on the nature of portfolio which we have, the high amount of mortgages, the low amount of unsecured book which we have, we do believe that the right credit cost for us would be some 1% and which is the guidance which we have given. So, that means 20% to 25% we can still shave off and still that credit cost will be higher than what we used to have earlier of closer to about 70 basis points. So, that gives us an opportunity to bring down credit cost by that much number, 20 to 25 basis points. As far as operating cost is concerned, you are seeing the advantage which is coming because of scale and because of use of technology. We believe there is an opportunity for us to bring down our costs by further from where we are by about 15 basis points or so. So, if you factor in the impact of credit cost and the impact of operating cost, that itself is about 40 basis points or so. And the balance will come from NIM plus fee. Even if I increase it by another 2%, it will not be large. It will just be 12%, which will be lesser than what I used to have in my peak. So, the opportunity for me to grow without impacting credit cost exists.
If we were to book up a LAP today, how would we decide whether it gets booked on the NBFC book versus the HFC book? And the way I look at it, this is a duplication of costs and team at both the places, right? Having two separate teams, having two separate policies, so if you could just take this up?
So Shubhranshu, as far as policies are concerned, you know the overall risk team at Tata Capital also oversees the risk at Tata Capital Housing Finance. While there are dedicated people for risk in Tata Capital Housing, but Tata Capital risk team oversees that. So we do ensure that there is no arbitrage on the policy side also. As far as booking is concerned, we have two separate sales team and two separate credit teams. Even the operations is separate. So completely distinct operations. So what is originated by one is booked by one, what is originated by the other team is booked by the other team. And so to that extent as far as training is concerned, we ensure that similar training is imparted. Sarosh Amaria added: in the housing finance company the team which sources the home loans is the same team which sources the LAP also. So there we have a very strong productivity improvement, because at times you have a self-employed customer, you have a salaried customer and at that point of time your productivity improves because you can go in for multiple loans for a particular customer.
Just two follow-ups on what you have shared with us in this earnings call. Firstly is, a couple of times you mentioned that we've not seen anything alarming in either SME, CV, or unsecured PL and BL segments in the month of April, which is very good to hear, but just wanted some more nuance around this. When you speak to the field teams, are they telling us that the customers, the businesses, the SMEs that we serve, they're not impacted by the war at all? Or is it that there are already some impact first-second order impacts that have started coming now but just that the customers are maybe resilient?
No, Abhijit, what I wanted to say is that, you know, the way to look at it is, two ways. One is where certain markets you see you hear about, whether it was Morbi or whether it was Surat or certain markets which come into the news where you look at those things. The first thing is to talk to those business as well as collection teams in those markets to see whether we've had any impact. And two is to look at generically on the portfolio what are you seeing, when you are getting feedback from your own teams who are talking to the clients. So based on the feedback from all of them, the view which we have ascertained, one is this that all entities, you know all SMEs have a linkage to large companies. And in almost all of them, they have been supported by the larger company in terms of helping them out in sourcing of raw material and so on and so forth. And that has not led to a situation where your businesses have shut or anything of that nature has happened. What has happened in certain cases is depending on the product, the raw material costs have moved up. But wherever raw material costs have moved up, what people are saying is that they are able to pass on those costs. As far as those specific markets for Surat and Morbi which came into the news which we have looked at, there we looked at you know both our bounce rates or our collections, as I mentioned to you in April actually we have not seen any impact and the way things are moving April is looking almost as good as March.
The other follow-up I had is earlier in the call you had shared and guided that FY27 you expect your cost of funds to be lower than in FY26. So I'm just trying to understand you also acknowledge this and a few other large NBFCs that we speak to have acknowledged that March particularly the cost of borrowings were significantly higher than the portfolio cost of borrowings. So do you think March was an aberration of sorts and because of some tightness in liquidity the cost went up and then in April have they reverted back? Subsequently if incremental cost of borrowings are coming in higher than what we saw until, let's say, Jan-Feb, then what is it that is telling us that cost of funds in FY27 can be lower than in FY26?
So, Abhijit I'll say, we should break it up into two parts, the stock and the incremental. If you look at the stock per se, when the interest rate started dropping, the benefit started accruing over the year. It is not that every lender or every borrower's cost of fund is linked to 100% to repo rate and it changes immediately as repo rate changes. So there is, for example, if you have already raised 3-year NCDs, when you will replace them with a fresh set of NCDs when the previous ones mature. So on maturity, the incremental cost will determine your cost of fund. So based on the same, we do believe that moneys which have been raised in FY26 or some part of FY25 will keep running for FY27 and may not need to be fully replaced and they will remain at the lower cost because they are fixed rate borrowings. So, one is this whole stock versus incremental logic and what will change for you is incremental and not the stock. The second is as far as your other question on March, yes, March did see an increase. However, when you talk about April, in April the short-term costs have come off while the long-term costs have still not come off compared to what they used to be in December-January. So that's the way I will put it.
My question is around the Motor Finance business. So, there was a legacy borrowing of around INR25,000 crores-INR26,000 crores in FY25. I want to understand how much of that has already been repriced and what proportion is pending after the merger? And second question is around the underwriting changes that you have made in the Motor Finance business post the merger, particularly around risk filters and maybe the rejection rates that you are seeing there because of the changes, the pricing discipline that you are trying to imbibe there and if you have made any changes in the dealer incentive structure.
So, Gaurav, as far as both the questions are concerned, one, as far as repricing is concerned, that activity we completed in the first few months of the merger. For that, we didn't take much time. The only place where I would say it took maybe 6 to 8 months was where the reset date was after that period. But wherever we didn't have challenges on the reset date, either we repriced or we repaid it and borrowed it afresh from someone else at a lower rate. So repricing is all done during the last financial year FY'26, or I would say 95% would have been done. As far as underwriting is concerned, a lot of changes were made in the underwriting policy in a number of ways. The policy changed, we looked at scorecards. We got certain people from outside also on the credit underwriting side. So, yes, we ensured that credit and sales were made distinct so that the purity of the function is respected. Plus, we introduced a fair amount of analytics so that we can detect things early if there is any challenge. As far as rejection rates are concerned, actually, we are not a big fan of this whole thing called rejection rate because it really depends on how you measure it. Our whole objective is at the front end, can we put in certain controls that things which are definitely going to get rejected, we don't even allow them to come into our system so that the sieving happens at the front end.
Just one question on our FY28 guidance. So for FY28, we have guided for an ROA band of 2.5% to 2.7%. I understand that the cost-to-income would play a crucial role in us meeting that guidance. So in that context, just wanted to understand if you could give some color on the levers that we are looking to bank on, to bridge the gap between the current cost-to-income versus the target by FY28? And just one slightly forward-looking question. If one observes in the past few months, there is some fair degree of layoffs in IT services space. In that context, from our prime to semi-prime home loan book, I wanted to understand if we are tracking any particular early warning indicators?
You know, one is we mentioned that we want to leverage our existing branch infrastructure more efficiently to get more products in per branch, which will help us. Two is, which is something which we religiously drive within the organization, is to look at how we can digitize more, how we can use data more, how we can use unstructured data more, and now it is all getting ingested more through Gen AI. So a lot of projects on that side which we are doing which are helping us. And third is clear benefit of scale. As your scale improves, that also leads to benefit on our cost to average assets. So it is going to be all of them, but I would say the biggest is obviously technology, digitization, and now increasingly more AI being used. So if you look at our approach there, one this is not something new. This is something which has been spoken about for the last, I would say, 12 to 18 months. And right from that stage, we had put some enhanced due diligence for this segment and we have been following that. The other is, a lot of the, I would say, layoff or whatever we call that by, has been there for larger companies, I would say prime companies, where probably loans have been given out at a single-digit or close to single-digit. And we do not have a very high presence in that segment per se. That is where I would say most of the larger banks would be present in. So when we have looked at our personal loan portfolio, which would include all salaried employees, that's a number which I had referred to earlier also, that our bounce rates have been coming down.
Most of the questions have been answered, just wanted to clarify a little bit more on yields, specifically because you mentioned the daily and the two-point average couple of times. Just to clarify, on both yields and on cost of borrowings, or on yields, the daily average is a materially higher number than the two-point average. This is what you are mentioning, right? While on cost of borrowings, it is not as much of a delta. Is that the right understanding? So just extrapolating that mathematically, 1Q or 1H yields should see a reversal immediately just based on that. Is that the right understanding?
Yes. There is obviously on yield the delta is higher than cost, but the delta exists in both places. Correct. Yes, yield fall is lower than the cost of fund. Yes. (Confirming Vikram's understanding that on a daily average basis, the yield fall is much lower than the cost of borrowing fall; and confirming that because the daily average of yields is higher than the two-point average of yields, 1Q yields on a two-point average basis should be better than 4Q yields, assuming everything else remains the same).